The six biggest myths currently confusing policymakers

There are some really big myths currently distorting the world’s view of itself…that we can clear up right now. Here are a few of the biggest:

• Solving the Israeli-Palestinian issue is the key to Middle East peace. 

It’s important. It even has broad repercussions. But neither of these things mean that solving it will actually make the Middle East broadly more stable than it is today. First, there is no such thing as an Israeli-Palestinian issue. The Palestinians are divided and the wing with the greatest allergies to peace, Hamas, is actually Iranian/Hezbollah sponsored. Their involvement does not however, mean that arriving at the two state solution that is the only answer for Israel and the Palestinians will instantly reduce tensions between Iran and Israel…especially given Iran’s views objections to Israel on grounds that have nothing to do with the Palestinians. Further, will solving the Arab-Israeli issue reduce tensions between Shiites and Sunnis, Turks and Kurds, Iranians and Saudis, extremists and moderates throughout the Arab world, the Taliban and the Afghan government, the Taliban and the Pakistani government, al Qaeda and the west, etc.? Will it bring a halt to the Iranian nuclear program or stabilize oil supplies? No. 

• Wall Street will never be the same.

Really? In the past week I have had conversations with senior Obama administration economic officials and prominent former Democratic cabinet and sub-cabinet members and the theme from all of them was the same. The reports of Wall Street’s demise as a center of obscenely high-paid, risk taking, politically influential, high-rollers are vastly overstated. To be sure we are in a downturn of historic portions and many big institutions have disappeared or been wounded. Further, new regulations like those associated with derivatives will be put in place. But some promised changes — like making it impossible for banks to grow “too big to fail” and containing executive compensation in meaningful ways — just can’t be done. Global corporations need global institutions of great scale to service them. Put limits on executive compensation in certain classes of companies and the best executives will move to others where they can make the dough. The firms within the TARP will skedaddle out as fast as they can and the firms left standing will have a great competitive position in global markets. There may be enduring caution on some level, but if you think that this recession is enough to crush the superclass on Wall Street (or their enduring hold on Washington policy makers) then you haven’t read enough about how cockroaches and other similar creatures can survive nuclear war.

• Capitalism is dead.

The bias of the Reagan-Thatcher era to always push for smaller government and to leave as many decisions as possible to the markets may have been brushed away. The needle has moved toward more government-market balance. But the reality is that the rise of China as a market economy and the expansion of basic market principals to essentially every country of the world prompting the rise of a new class of economic heavyweights is a far bigger, more important story than this downturn. The world is becoming more capitalist not less, more integrated and thus more dependent on a similar set of rules. As in the preceding case, the efforts of most leaders in the public and private sectors are focused on restoring conditions much like those that preceded the crisis and massive, fundamental changes are being resisted and repelled. Sooner or later more significant global regulation and institutions for that regulation will be needed. But my sense is that this crisis has not thus far been enough to motivate such fundamental changes (which require ceding sovereignty which is always anathema to national governments.)

• The War on Terror is Over.

No. It has gone from being overstated to, in the minds of some commentators and policy-labelers to being over. But it is not going away.  Threats remain and are actually growing that sometime in the not too distant future a terrorist group will unleash weapons of mass destruction somewhere in the world. The war in Pakistan and Afghanistan is a war against terrorists on the one hand and a war to ensure the security of Pakistan’s nuclear arsenals against terrorists on the other. Indeed, it’s the fact that it is not a conventional conflict between nations that makes it so hard to fight as to act against our adversaries we must take steps that appear to be actions against our allies (violating sovereignty, attacking their soil, etc.) The Bush War on Terror, mismanaged, bloated, confused by other agendas, was a failure. It is too early to say whether the Obama version of the war, whatever it is called, is more successful or not.

• Barack Obama will shift U.S. policies far to the left and be the U.S. President the world has been fantasizing about.

Barack Obama is a pragmatist. He and those around him are from the enduring centrist traditions of U.S. foreign policy. Whether it is positions on detainees or terror files, how he handles trade issues or how he balances interests among our allies, he may be very different from his predecessor in his rhetoric, in his background and especially in his competence, but he will increasingly seem to the world very much like what they have come to expect from American presidents over the years (as disappointing as that may be to some and as reassuring as that may be to others). Where he advocates big changes it will be because he is reflecting a majority opinion in the United States (get out of Iraq, wind down the embargo on Cuba) or for reasons that are easily misinterpreted (he will be much more multilateral in his impulses but in large part this is due to a need for enhanced burden sharing rather than any view that widely varies from the traditional U.S. views on ceding our prerogatives to others.) Right now, he has that quality many popular leaders do which is that people see in him what they want. Bush was country and western. He is world music. But that’s not the case, he is simply the latest iteration of a rapidly changing U.S. establishment.

• The Recession is the Biggest Problem the World is Facing and It’s Almost Over.

First, of all, huge imbalances in wealth, deprivation that claims the lives of 40,000 children under five a day from causes that could be prevented, global warming, and other chronic problems are much bigger in human terms and in terms of geopolitical consequences. The recession is a big issue because it is impacting the rich as well as the poor and hence getting the attention. Further, the recession may be bottoming out but it may not be, secondary dips due to further crises (commercial real estate, emerging markets debt crunches, etc.) are possible. But for many economists, the problem may not be the recession as much as it is the recovery. If the recovery is very slow, if the United States struggles to get past 2 percent growth, and this endures for years (viz. Japan) it could put major new stresses on the global economy and on leaders fumbling for answers as to what to do to jump start the U.S. which remains for many, the world’s market of first choice and last resort.

I would have added “there is a way for the United States to win in Pakistan” since I think our best outcome there is likely to be avoiding a catastrophe. But you may have others. Please add them to the list.

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